ICE cotton futures rebounded 0.93% to 76.97 cents per pound on June 25, after hitting a two-week low of 76.09 cents earlier in the session. The bounce was driven by a weaker dollar, bargain buying, and rising oil prices. However, for the textile supply chain, the sustainability of this rally hinges on demand-side fundamentals.
Weak Dollar and Oil Spike Provide Temporary Support
The dollar index fell on Thursday after a series of US economic data dampened expectations for a Fed rate hike this year. A weaker dollar makes dollar-denominated cotton cheaper for overseas buyers, theoretically supporting exports. Meanwhile, oil prices rose over 2% on renewed Middle East tensions after a cargo ship was attacked near Oman, raising concerns about supply disruptions. Higher oil prices boost polyester costs, reducing its substitution advantage over cotton.
These factors, however, are sentiment-driven and likely short-lived. The dollar's trajectory remains data-dependent, and geopolitical oil spikes are often transient. The real driver of cotton prices will be supply-demand fundamentals.
Export Data Sounds Alarm: Weak Demand is the Core Issue
The USDA's weekly export sales report painted a worrying picture. For the week ending June 18, net sales of current-crop US upland cotton were just 83,864 bales, down 53% from the prior week and 61% below the four-week average. New-crop sales added 67,089 bales, also subdued. Shipments rose 20% week-on-week but fell 16% from the four-week average, with shipments to China at only 12,248 bales.
These numbers show that despite lower prices, overseas buyers remain hesitant. Weak global textile demand and high inventories are the root causes. The bargain buying seen on Thursday was largely speculative, not driven by genuine hedging or restocking by mills. Such spec-led rallies often lack staying power.
Industry Impact: Cotton Bottom Not Yet Clear, Tension Escalates
For ginners and traders, the current 76-77 cent level does not yet represent a clear cost floor. If export data continues to disappoint, prices could test new lows. For textile mills, this bounce offers a short-term window for tactical pricing, but large-scale accumulation should be avoided given the risk of a second leg down.
From a broader perspective, the cotton-polyester substitution dynamic is shifting. While higher oil prices support cotton in the near term, a global economic slowdown could depress oil demand and reverse that support. The real demand gauge remains operating rates and order books in major textile hubs like China.